The Farm Credit System Association Captive Insurance Company Annual Report 1999 March 2000 Message to Subscribers The Farm Credit System Association Captive Insurance Company (the Captive) enjoyed an unusually low claims year in 1999. Claims were lower than expected for nine of its eleven lines resulting in net profit for the year of $6.5 million on $7.4 million in premiums. This level of profit cannot be anticipated as it reflects the volatile nature of the insurance industry. The added surplus from these earnings increased your ownership in the Captive and strengthens its position in the event of an unusually high loss year. Because of the strong financial position of the Captive, cash distributions of $2.9 million will be made to its Subscribers this March. The Principal Subscribers, who initially funded the Captive, will receive $900,000 to bring their current level of Contributed Surplus to our goal level of $75,000 for each Principal Subscriber. And, all Subscribers will share in the remaining $2.0 million distribution. The Captive’s success has allowed it to return over $10 million to its owners over the past four years. The Captive embarked on several noteworthy projects during 1999. Working with a group of Farm Credit System representatives, the Captive began to explore the possibility of consolidating the many Credit Life plans currently in place with the goal of simplifying them while increasing the System’s profits from those programs. We’ll continue these efforts in 2000. The Captive performs pricing studies on each of its lines of coverage in three year cycles. During 1999, pricing studies were completed for the D&O, Bankers Blanket Bond, Fiduciary, Owned Property, Lenders Single Interest, Auto Physical Damage and Mortgage/Chattel Impairment coverages. These studies update premiums based on current and projected data for exposures and losses. Premiums for these seven lines for 2000-2002 will be based upon these studies and are anticipated, in total, to increase by an average 4% per year. The Year 2000 came and went without the System experiencing the “y2k” computer problems that many predicted. The diligence with which the System addressed this issue made y2k a non-issue for the Captive, and to date, no “y2k” claims have been received. The Subscribers Advisory Committee, the governing body of the Captive, and FCCServices, Inc., the Attorney-In-Fact, remain dedicated to providing stable, reliable, and cost effective alternatives for insuring your risks. Sincerely, John E. Lovstad, Chairman and President 10375 East Harvard Avenue, Suite 220 • Denver, CO 80231 • Telephone (720) 747-4200 Mailing Address: P.O. Box 5130 • Denver, CO 80217 • Fax (720) 747-4202 The Farm Credit System Association Captive Insurance Company Report of Management The financial statements of the Captive are prepared by management, which is responsible for their integrity and objectivity, including amounts that must necessarily be based on judgments and estimates. The financial statements have been prepared in conformity with accounting practices prescribed or permitted by the State of Colorado Division of Insurance. The financial statements, in the opinion of management, present fairly, in all material respects, the financial condition of the Captive at December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with the statutory basis of accounting as further described in the notes to the financial statements. Other financial information included in this Annual Report is consistent with that in the financial statements. To meet its responsibility for reliable financial information, management depends on accounting and internal control systems which have been designed to provide reasonable, but not absolute, assurance that assets are safeguarded and transactions are properly authorized and recorded. The systems have been designed to recognize that the cost must be related to the benefits derived. The financial statements are examined by Dollinger, Smith & Co., independent accountants, which also conducts a review of internal controls to the extent necessary to comply with generally accepted auditing standards. The Captive is also subject to examination by the State of Colorado Division of Insurance. The Subscribers Advisory Committee has overall responsibility for a system of internal controls and financial reporting, as provided by Farm Credit Council Services, Inc., as Attorney-in-Fact. The Subscribers Advisory Committee has established an Audit Committee and an Investment Committee. The Audit Committee meets periodically with management and the independent accountants to review the scope and results of their work. The independent accountants have direct access to the Audit Committee. The Investment Committee meets periodically to review and evaluate the investment guidelines and portfolio, approve investment activities and to review related reports prepared by the investment managers. INDEPENDENT AUDITORS' REPORT To the Subscribers Advisory Committee of The Farm Credit System Association Captive Insurance Company: We have audited the accompanying statutory statements of admitted assets, liabilities, and surplus of The Farm Credit System Association Captive Insurance Company as of December 31, 1999 and 1998, and the related statutory statements of income and changes in surplus and cash flows for the years then ended. These financial statements are the responsibility of the Captive's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described more fully in Note 2 to the financial statements, the Captive prepared these financial statements using accounting practices prescribed or permitted by the Division of Insurance of the Colorado Department of Regulatory Agencies which is a comprehensive basis of accounting other than generally accepted accounting principles. The effects on the financial statements of the variances between the statutory basis of accounting and generally accepted accounting principles, although not reasonably determinable, are presumed to be material. In our opinion, because of the effects of the matter discussed in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with generally accepted accounting principles, the financial position of The Farm Credit System Association Captive Insurance Company as of December 31, 1999 and 1998, or the results of its operations or its cash flows for the years then ended. In our opinion, the financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities, and surplus of The Farm Credit System Association Captive Insurance Company as of December 31, 1999 and 1998, and the results of its operations and its cash flows for the years then ended, on the basis of accounting described in Note 2. The Farm Credit System Association Captive Insurance Company Statutory Basis Statement of Admitted Assets, Liabilities, and Surplus 1999 1998 Admitted assets: Cash and short-term investments $ 6,799,584 $ 148,175 Fixed maturity investments 37,272,725 39,026,476 Total cash and investments 44,072,309 39,174,651 Accounts receivable 123,572 43,469 Interest receivable 517,932 530,251 Total admitted assets $ 44,713,813 $ 39,748,371 Liabilities: Losses and loss adjustment expenses $ 14,446,201 $ 14,561,487 Unearned premiums 72,316 Accounts payable and accrued expenses 106,581 93,444 Total liabilities 14,625,098 14,654,931 Surplus: Contributed surplus paid in by Principal Subscribers 1,800,000 2,300,000 Subscriptions receivable (25,000) (50,000) Surplus appropriated for regulatory purposes 750,000 750,000 Unassigned surplus 27,563,715 22,093,440 Total surplus 30,088,715 25,093,440 Total liabilities and surplus $ 44,713,813 $ 39,748,371 The accompanying notes are an integral part of these statements. The Farm Credit System Association Captive Insurance Company Statutory Basis Statement of Admitted Assets, Liabilities, and Surplus Year Ended December 31, 1999 1998 Underwriting income: Premiums earned $ 7,447,148 $ 7,047,966 Underwriting expenses: Losses and loss adjustment expenses 2,465,448 5,235,167 Premium taxes 37,236 35,211 Other underwriting and administrative expenses 798,685 732,020 3,301,369 6,002,398 Net underwriting income 4,145,779 1,045,568 Net investment income 2,324,496 2,345,791 Net income 6,470,275 3,391,359 Surplus at beginning of year 25,093,440 23,264,439 Distributions to Subscribers (1,500,000) (1,500,000) Distribution to Terminated Subscribers (87,358) Contributed Surplus - New Subscribers 25,000 25,000 Surplus at end of year $ 30,088,715 $ 25,093,440 The accompanying notes are an integral part of these statements. The Farm Credit System Association Captive Insurance Company Statutory Basis Statement of Cash Flows Year Ended December 31, 1999 1998 Cash flows from operating activities: Premiums collected $ 7,439,360 $ 7,046,268 Losses and loss adjustment expenses paid (2,639,068) (5,870,379) Loss expense recoveries 58,334 144,868 Underwriting and administrative expenses (822,784) (767,335) paid Investment income received 2,441,925 2,243,909 Net cash provided by operating activities 6,477,767 2,797,331 Cash flows from investing activities: Purchases of fixed-maturity investments (12,887,406) (15,819,308) Maturities of fixed-maturity investments 14,536,048 11,303,924 Net cash from investing activities 1,648,642 (4,515,384) Cash flows from financing activities: Distribution of Contributed Surplus (500,000) (500,000) Distribution of Allocated Savings (1,000,000) (1,000,000) Distribution to Terminated Subscribers (87,358) Contributed Surplus paid-in 25,000 25,000 Net cash used in financing activities (1,475,000) (1,562,358) Net change in cash and short-term investments 6,651,409 (3,280,411) Cash and short-term investments at: Beginning of year 148,175 3,428,586 End of year $ 6,799,584 $ 148,175 The accompanying notes are an integral part of these statements. The Farm Credit System Association Captive Insurance Company Notes to Statutory Basis Financial Statements 1. ORGANIZATION The Captive provides eleven different insurance coverages (as shown in the table below) to the member organizations of the Farm Credit System and The Farm Credit Council (“FCC”), a trade association for the Farm Credit System (collectively called "Subscribers"). At December 31, 1999, the Farm Credit System entities insured by the Captive include six Farm Credit Banks, one Agricultural Credit Bank, four service corporations and approximately one hundred seventy-two associations. Coverage provided Per occurrence limit Aggregate limit Directors and officers liability $5,000,000 $10,000,000 Fiduciary liability $5,000,000 annual Bankers blanket bond $2,500,000 aggregate(a) Auto liability $1,000,000 $7,000,000 General liability $1,000,000 three year Workers compensation $1,000,000 aggregate Medical stop loss $500,000 $1,000,000 Owned property $50,000 $2,100,000 Lenders single interest $50,000 two and a half Mortgage/chattel impairment $50,000/$10,000 year aggregate Auto physical damage $25,000(b) N/A (a) Captive retains $1 million per loss beyond aggregate. (b) Losses in excess of per occurrence limit accrue toward Workers Compensation, General Liability and Auto Liability aggregate. Reciprocal insurance results from an interchange among subscribers of reciprocal agreements of indemnity, through an attorney-in-fact common to all of the Subscribers. Pursuant to the Subscribers Agreement, a Subscribers Advisory Committee is elected by the voting Subscribers ("Principal Subscribers"). The Principal Subscribers include the seven banks, four service corporations and FCC described above. The Captive is managed by FCCServices, Inc. (FCCS), a wholly-owned subsidiary of FCC, as Attorney-in-Fact, as directed by the Subscribers Advisory Committee and subject to the limitations of the Subscribers Agreement. The Captive had a facultative reinsurance arrangement for the Medical Stop Loss line of coverage for 1999 for claims exceeding the $500,000 limit of the Captive. There were no reinsurance arrangements in 1998. The Farm Credit System Association Captive Insurance Company Notes to Statutory Basis Financial Statements 2. SIGNIFICANT ACCOUNTING POLICIES Basis for Presentation The accompanying financial statements have been prepared in accordance with accounting practices prescribed or permitted by the State of Colorado Division of Insurance. Such accounting practices differ from generally accepted accounting principles. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Premiums All premiums written are on a calendar year basis. Premiums written are recognized as revenue on a pro-rata basis over the policy periods. Cash and Investments Short-term investments include investments with original maturity dates, when acquired, of twelve months or less, in accordance with statutory accounting practices. Short-term investments are valued at amortized cost. Cash balances are swept into a money market account that is included with short-term investments. Fixed-maturity investments include investments with original maturity dates when acquired of more than twelve months and are comprised of fixed income securities recorded at amortized cost. Losses and Loss Adjustment Expenses The Captive's directors and officers liability, fiduciary liability, and medical stop loss liability policies are issued on a claims-made basis. The bankers blanket bond is issued on a discovered basis. The general liability, auto liability, workers compensation, owned property, lenders single interest, mortgage/chattel impairment and auto physical damage policies are issued on an occurrence basis. Liabilities for losses and loss adjustment expenses are based on actuarial estimates of the ultimate cost of reported claims and incidents as well as incurred but not reported claims. Such liabilities are necessarily based on estimates and, while management believes that the amount is adequate, the ultimate liability may be in excess of or less than the amounts provided. The Farm Credit System Association Captive Insurance Company Notes to Statutory Basis Financial Statements The estimated liabilities for losses and loss adjustment expenses are adjusted at least annually based on the report of an independent actuary reflecting historical claims experience. Attorney-in-Fact Fees Under the terms of the Subscribers Agreement, the Attorney-in-Fact is paid a fee for its services, as authorized by the Subscribers Advisory Committee. Attorney-in-Fact fees of $586,544 in 1999 and $558,613 in 1998 were charged to expense as incurred. Income Taxes The Captive is subject to federal income taxes. However, the Captive does not expect to incur a federal tax liability as it is entitled to a special tax deduction equal to the amounts allocated to its Subscribers accounts prior to the sixteenth day of the third month following its taxable year. It is the Captive's intention to so allocate any otherwise taxable income to its Subscribers and, therefore, no provision for income taxes has been made in the accompanying financial statements. 3. PREMIUMS EARNED Premiums earned for the years ended December 31, 1999 and 1998 were: 1999 1998 Directors and officers liability $1,683,650 $1,631,303 Fiduciary liability 160,000 130,481 Bankers blanket bond 725,995 632,606 Auto liability 781,830 740,220 General liability 392,838 366,137 Workers compensation 1,630,170 1,538,944 Medical stop loss 627,679 589,464 Owned property 453,378 456,135 Lenders single interest 409,549 393,507 Mortgage/chattel impairment 53,181 55,880 Auto physical damage 528,878 513,289 $7,447,148 $7,047,966 The Farm Credit System Association Captive Insurance Company Notes to Statutory Basis Financial Statements 4. INVESTMENTS At December 31, 1999 and 1998, the amortized cost and estimated market value of investments were as follows: December 31, 1999 Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value Short-term investments $ 6,799,584 $ 6,799,584 Fixed-maturity investments: US Treasury notes 16,793,138 $ 330,278 16,462,860 US Government agencies 8,202,807 162,336 8,040,471 General obligation bonds 2,512,425 71,004 2,441,421 Corporate-debt securities 5,487,654 $ 5,157 56,100 5,436,711 Mortgage-backed securities 1,860,428 1,860,428 Asset-backed securities 2,416,273 2,416,273 Total Fixed-maturity 37,272,725 5,157 619,718 36,658,164 $ 44,072,309 $ 5,157 $ 619,718 $ 43,457,748 December 31, 1998 Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value Short-term investments $ 148,175 $ 148,175 Fixed-maturity investments: US Treasury notes 10,892,169 $ 465,433 $ 3,463 11,354,139 US Government agencies 13,469,402 138,850 13,608,252 General obligation bonds 2,519,689 37,880 2,557,569 Corporate-debt securities 5,521,663 169,664 5,691,327 Mortgage-backed securities 2,986,644 33,437 3,020,081 Asset-backed securities 3,636,909 27,097 3,664,006 Total Fixed-maturity 39,026,476 872,361 3,463 39,895,374 $ 39,174,651 $ 872,361 $ 3,463 $ 40,043,549 The Farm Credit System Association Captive Insurance Company Notes to Statutory Basis Financial Statements The contractual maturities of the investments held at December 31, 1999 are: Amortized cost Market value Within one year $ 9,010,369 $ 9,008,487 One to five years 29,657,985 29,164,154 Five to ten years 5,403,955 5,285,107 $ 44,072,309 $ 43,457,748 Realized gains and losses on the sale of investments in 1999 were $19,286 and $1,979 respectively. The 1998 realized gains and losses were $43,902 and $3,450 respectively. The estimated market values shown are based on NAIC Securities Valuation Office (SVO) market prices. In accordance with statutory practices, unrealized gains and losses are not recorded on the books. 5. LIABILITIES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES A summary of the estimated liabilities for losses and loss adjustment expenses at December 31, 1999 and 1998 is presented below: 1999 1998 Directors and officers liability $ 5,876,163 $ 5,693,819 Fiduciary liability 350,483 510,960 Bankers blanket bond 2,016,379 3,152,111 Auto liability 1,983,181 1,033,905 General liability 531,792 497,124 Workers compensation 2,513,490 2,305,888 Medical stop loss 229,186 468,000 Owned property 146,131 129,406 Lenders single interest 141,547 138,554 Mortgage/chattel impairment 33,833 37,774 Auto physical damage 107,616 95,746 Unallocated loss adjustment expenses 516,400 498,200 $ 14,446,201 $ 14,561,487 The Farm Credit System Association Captive Insurance Company Notes to Statutory Basis Financial Statements The decrease in liabilities for 1999 and 1998 respectively, consist of the following: 1999 1998 Incurred claims related to: Current year $ 6,942,186 $ 6,526,359 Prior year (4,476,738) (1,291,192) Total incurred 2,465,448 5,235,167 Paid claims (net of recoveries) related to: Current Year 1,510,344 1,387,313 Prior Year 1,070,390 4,336,869 Total paid 2,580,734 5,724,182 Decrease in liability $ (115,286) $ (489,015) 6. LETTER OF CREDIT Effective January 1, 1999, a letter of credit was issued by CoBank, a Principal Subscriber, to St. Paul Fire and Marine Insurance Companies (St. Paul) to guarantee the Captive’s reimbursement to St. Paul for claims they pay on the Captive’s behalf as claims administrators for the workers compensation line of coverage, as well as selected auto liability and general liability claims. The amount guaranteed by this letter of credit is $2,349,050 for 2000. 7. STATUTORY AND REGULATORY REQUIREMENTS In accordance with the Colorado Captive Insurance Laws, an association captive insurance company must maintain total capital and surplus of $500,000; however, the Insurance Commissioner (Commissioner) of the State of Colorado may require that additional capital or surplus, or both, be maintained. The Commissioner requires the Captive to maintain minimum capital and surplus of $750,000. This $750,000 is required to be an appropriation of surplus for regulatory minimum capital. In connection with this requirement, the Captive has a fixed-maturity investment in a restricted joint-access account with the Commissioner. At December 31, 1999 the amortized cost and market value of the investment were $761,167 and $752,348 respectively. The Farm Credit System Association Captive Insurance Company Notes to Statutory Basis Financial Statements 8. CONTRIBUTED AND ALLOCATED SURPLUS Should a Principal Subscriber terminate its interest in the Captive, its pro rata share of any balance of contributed surplus will be returned within six months of the termination, subject to the determination by the Subscribers Advisory Committee that any repayment will not impair the financial stability of the Captive. There were no liquidation distributions made in 1999. In 1999, the Captive distributed $500,000 of contributed surplus in accordance with the capital management plan to reduce each Principal Subscriber’s balance to $75,000 over a five-year period. The Subscribers Advisory Committee allocates among individual Subscribers the Captive's taxable income for the year. The Captive is allowed a tax deduction for amounts so allocated. Such amounts allocated may be returned or credited to the Subscribers at the discretion of the Subscribers Advisory Committee, subject to regulatory requirements. In 1999, the Captive distributed $1,000,000 of allocated Subscriber Savings Accounts to its Subscribers. Should a Subscriber terminate its interest in the Captive, the balance of its allocated Subscriber Savings Account will be paid within six months of termination of coverage, subject to the provisions of the Subscribers Agreement. There were no such distributions made in 1999. A reconciliation between the net income shown by the accompanying financial statements and taxable income allocated to Subscribers for the years ended December 31, 1999 and 1998 follows: The Farm Credit System Association Captive Insurance Company Notes to Statutory Basis Financial Statements 1999 1998 Net income per accompanying financial statements $6,470,275 $ 3,391,359 Add (deduct) for income tax purposes: Net loss reserve adjustments (452,583) 85,705 Accretion of market discount on investments (211,001) (168,562) Interest income recognized for market discount on matured investments 421,816 139 065 Other, net 2,471 1,306 Taxable income allocated to Subscribers 6,230,978 3,448,873 Allocated at beginning of year 25,219,574 22,809,673 Distributions to Subscribers (1,000,000) (1,000,000) Distributions to Terminated Subscribers (38,972) Allocated at end of year $30,450,552 $25,219,574 9. SUBSEQUENT EVENTS In accordance with the Captive’s capital management strategy, the Subscribers Advisory Committee approved, at its February 24, 2000 meeting, the distribution of $2,900,000 to Subscribers, payable in March 2000. The distribution consists of a return of $900,000 of contributed surplus and $2,000,000 of allocated Subscriber Savings Accounts. The Farm Credit System Association Captive Insurance Company Management’s Discussion and Analysis of Financial Condition and Results of Operations Results of Net income for 1999 of $6.5 million was 87% of premiums and was Operations almost double 1998’s income of $3.4 million. Loss experience for the year was much better than expected for all lines except Auto Liability, which had a single claim hit the $1,000,000 per occurrence limit, and Medical Stop Loss, which had over $860,000 in losses paid this year. Premiums – Premiums earned in 1999 were $7.4 million versus $7.0 million in 1998. The increase of $.4 million was due to rate increases in all lines except Auto Liability. Loss and Loss Adjustment Expense – Loss and loss adjustment expenses of $2.5 million reflected a 53% decrease from $5.2 million in 1998. The total number of claims and paid loss and loss adjustment expenses were significantly below projections and 1998 levels. Loss reserves for all lines were computed on the same basis as previous years, with the exception of Directors & Officers, which was calculated using a reduced 87% confidence level from 91% in 1998. Other Underwriting and Administrative Expenses – Other underwriting and administrative expenses increased by $67,000 from 1998 primarily due to an increased management fee, the A. M. Best Company rating fee, and the completion of two pricing studies. Net Investment Income – Net investment income remained unchanged at $2.3 million. Although investable balances were higher, yields in fixed income securities were lower in 1999. The investment portfolio remains focused on high quality fixed income securities. The selected financial data and key ratios presented on pages 21 and 23 show the fluctuation in the results of operations over the past five years as loss experience and actuarial adjustments to loss reserves can skew the results of individual years significantly. Surplus has grown from $20.2 million to $30.1 million over this period. The Captive coverage for D&O, Fiduciary, Bankers Blanket Bond and Medical Stop Loss are for risks with expected low frequency but potential high severity of claims; therefore, a higher level of loss reserves and surplus are considered necessary. The Farm Credit System Association Captive Insurance Company Management’s Discussion and Analysis of Financial Condition and Results of Operations Expenses I nv est ment $0.8 Losses I ncom e $2.5 $2.3 Premium s Net Income $7.4 $6.5 Revenues Results Liquidity and The Captive’s capital funding was initially provided by $6.3 million of Funding contributed surplus paid in by the Principal Subscribers. Funding generated from earnings through December 31, 1999 was $31 million. In 1999, the Captive made its third cash distribution to its Subscribers, returning $500,000 of contributed surplus to the Principal Subscribers and $1 million of allocated Subscriber Savings Accounts to all Subscribers. The Captive plans to continue contributed surplus distributions annually until it reaches its targeted level of contributed surplus of $75,000 per Principal Subscriber. In addition, the Captive plans to make annual distributions of allocated Subscriber Savings, provided the Captive’s surplus level is adequate to allow for them. Total assets of $44.7 million are more than adequate to cover the known obligations of the Captive, including the actuarial estimates of future payments for losses incurred but not reported, as of December 31, 1999. The Captive does not have any outstanding debt as of December 31, 1999. As of January 1, 2000, the Captive has a line of credit of $2.3 million with CoBank, a Principal Subscriber, to guarantee a letter of credit issued in favor of the claims administrators for the General Liability, Auto Liability and Workers Compensation lines of coverage. The Farm Credit System Association Captive Insurance Company Management’s Discussion and Analysis of Financial Condition and Results of Operations Capital Resources Total surplus at December 31, 1999 was $30.1 million or 67% of total assets. The State of Colorado requires the appropriation of surplus in amounts equal to the Captive’s minimum capital requirements of $750,000. Unassigned surplus increased by $5.5 million in 1999 to $27.6 million. The total allocated Subscribers’ Savings Accounts at December 31, 1999 was $30.5 million. This represents cumulative taxable income from the inception of the Captive less the $3 million cumulative distributions made from 1997 through 1999, and minor distributions to terminated Subscribers. The allocated Subscribers’ Savings are considered unassigned surplus, because, in the event the Captive would experience financial difficulties, such amounts would be available for settlement with creditors. There are no planned capital expenditures for 2000. The Farm Credit System Association Captive Insurance Company Subscribers Advisory Committee and Officers The governing body of the Captive is the Subscribers Advisory Committee (the Committee) which is comprised of seven members, all of whom hold positions of employment within the Farm Credit System. A Committee member may not serve more than two consecutive terms. Committee John E. Lovstad Chairman and President Members Title: Administrative Officer AgAMERICA, FCB/Western Farm Credit Bank Term of Office: February 1998 – February 2001 Thomas S. Welsh Vice Chairman Title: Executive Vice President, Chief Administrative and Legislative Officer AgFirst Farm Credit Bank Term of Office: February 1998 – February 2001 Darryl W. Rhodes Chairman of the Investment Committee Title: Executive Vice President, Finance and Chief Financial Officer Farm Credit Bank of Wichita Term of Office: September 1996 - February 2000 Michael A. Luby Chairman of the Nominating and Audit Committees Title: Senior Vice President - Operations Division Manager CoBank Term of Office: September 1996 - February 2000 Alton K. McRee Member of the Audit Committee Title: President and Chief Executive Officer FLBA of South Mississippi Term of Office: February 1999 – February 2002 Dianna R. Ragan Member of the Audit Committee Title: General Counsel and Corporate Secretary FCS of Mid-America Term of Office: February 1999 – February 2002 Gary R. Dyer Member of the Nominating and Investment Committees Title: President and Chief Executive Officer FCS Southwest, ACA Term of Office: September 1996 – February 2000 The Farm Credit System Association Captive Insurance Company Other Officers and Authorized Representatives Other Dorothy J. Mayes, Secretary Officers Title: Manager, Risk Management Accounts Risk Management, Insurance and Legal Services Group FCCServices, Inc. Karen M. Miller, Vice President and Treasurer Title: Senior Vice President – Customer Support Group and Chief Financial Officer FCCServices, Inc. Gary R. Dillinger, Vice President and General Counsel Title: Senior Vice President – Risk Management, Insurance and Legal Services Group, General Counsel and Corporate Secretary FCCServices, Inc. Additional Timothy D. Steidle Member of the Title: Vice President – Director of Funding and Investments Investment CoBank Committee Title with FCCServices, Inc. Attorney-in-Fact Michael D. Frey Chief Executive Officer Authorized Gloria A. Brosius Manager, Risk Management Programs Representatives Debbie L. Dettmer Manager, Risk Management Claims Alton E. Parrish Manager of Accounting The Farm Credit System Association Captive Insurance Company Selected Financial Data – Five Years Ended December 31, 1999 (in thousands) Statement of Financial Condition 1999 1998 1997 1996 1995 (Statutory Basis) Cash and short-term investments $ 6,800 $ 148 $ 3,429 $ 4,252 $ 1,118 Other investments and receivables 37,914 39,600 34,979 32,576 29,871 Total admitted assets $ 44,714 $ 39,748 $ 38,408 $ 36,828 $ 30,989 Estimated liability for losses $ 14,446 $ 14,562 $ 15,050 $ 12,105 $ 10,760 Other current liabilities 179 93 94 4,560 55 Total liabilities 14,625 14,655 15,144 16,665 10,815 Contributed surplus 1,800 2,300 2,773 2,773 6,273 Less-Subscriptions receivable (25) (50) 0 0 (9) Total contributed surplus 1,775 2,250 2,773 2,773 6,264 Appropriated surplus 750 750 750 750 1,551 Unassigned surplus 27,564 22,093 19,741 16,640 12,359 Total Surplus 30,089 25,093 23,264 20,163 20,174 Total liabilities and surplus $ 44,714 $ 39,748 $ 38,408 $ 36,828 $ 30,989 Statement of Income 1999 1998 1997 1996 1995 (Statutory Basis) Premiums earned $ 7,447 $ 7,048 $ 6,231 $ 5,473 $ 4,969 Total losses and underwriting expenses 3,301 6,002 5,245 3,024 2,990 Net underwriting income 4,146 1,046 986 2,449 1,979 Net investment income 2,324 2,345 2,116 2,030 1,616 Net Income $ 6,470 $ 3,391 $ 3,102 $ 4,479 $ 3,595 The Farm Credit System Association Captive Insurance Company Selected Financial Data – Five Years Ended December 31, 1999 Key Ratios 1999 1998 1997 1996 1995 Premiums to surplus 0.248 0.281 0.309 0.271 0.246 Liabilities to surplus 0.484 0.584 0.751 0.827 0.536 NET LEVERAGE 0.732 0.865 1.060 1.098 0.782 Loss ratio 0.331 0.743 0.733 0.450 0.504 Expense ratio 0.112 0.109 0.109 0.102 0.098 Combined ratio 0.443 0.852 0.842 0.552 0.602 Net investment income ratio (0.312) (0.333) (0.340) (0.371) (0.325) OPERATING RATIO 0.131 0.519 0.502 0.181 0.277 RETURN ON SURPLUS 25.8% 14.6% 15.4% 22.2% 21.7% OVERALL LIQUIDITY 306.8% 271.2% 253.6% 221.0% 286.5% Loss reserves to surplus 48.0% 58.0% 64.7% 60.0% 53.3% DEFINITIONS OF KEY INSURANCE INDUSTRY RATIOS NET LEVERAGE - Sum of ratio of premiums to surplus and ratio of liability to surplus (ratio used to measure exposure to pricing inadequacies as well as errors in estimating liabilities). The normal range for the insurance industry is 5.0 to 6.0. - Premiums to surplus - Current year premiums earned divided by total surplus at end of year. The normal range is 1.5 to 2.0. - Liabilities to surplus - Total liabilities divided by total surplus at end of year. The normal range is 3.0 to 3.8. The Farm Credit System Association Captive Insurance Company Selected Financial Data – Five Years Ended December 31, 1999 DEFINITIONS OF KEY INSURANCE INDUSTRY RATIOS (continued) OPERATING - Sum of loss ratio and the expense ratio, less the net investment RATIO income ratio (indicates the profitability of operations with a ratio below 1.0 signifying a profit). The normal range is .85 to .95. - Loss ratio - Total losses and loss adjustment expenses divided by premiums earned. - Expense ratio – Sum of premium taxes and general administrative expenses divided by premiums earned. - Combined ratio – Sum of loss and expense ratio. - Net investment income ratio - Investment income, less related investment expenses, divided by premiums earned. RETURN ON Net income divided by total surplus as of the prior year-end. The SURPLUS normal range is 5% to 15%. OVERALL - Ratio of total admitted assets to total liabilities. The normal range LIQUIDITY is 110% to 150%. - Loss reserves to surplus - Liability for reserves for losses divided by total surplus; ratio measures the potential impact on surplus of a deficiency or redundancy in loss reserves. The normal range is 200% to 300%. All of the Captive’s key ratios for 1999 are within or better than the normal range.
"Captive Insurance Financial Statements"